Asset management firms need to radically overhaul their investment trust sales strategies, which are acting as a roadblock to the sector unleashing its full growth potential.
Investment chiefs say small sales teams, poor incentives, and a lack of any distribution strategy are holding back a potential flood of cash.
The removal of commission under the RDR was expected to break down barriers between open- and closed-ended funds and see more money flowing into trusts. But the groundswell of expected support has not materialised.
David Coombs, head of multi-asset investments at Rathbone Unit Trust Management, claimed the marketing and distribution of trusts was hamstringing the sector.
He said more support from groups could increase liquidity, allowing trusts to issue more shares and boost assets in the sector.
“The investment trust sector should be a big success but it is not, because of the state of distribution,” he said.
Mr Coombs criticised asset managers for focusing all their sales and marketing efforts on open-ended funds, which are easier to grow, thus increasing revenue and profit.
He said asset management firms’ remuneration seemed to still be geared towards the selling of open-ended funds, not trusts, in spite of the RDR. He added: “If the only thing stopping that is how you pay your sales force then that is a poor excuse”.
“There is some good practice, but it is few and far between,” he added. He said he had attempted to convince senior brass at several asset managers to change their approach but that it was akin to “pushing water up a hill”.
Stephen Peters, Charles Stanley’s investment trust analyst, said it was “absolutely true” asset managers commit most of their resources to open-ended funds rather than investment trusts.
He said while some companies were better than others, highlighting Aberdeen and JPMorgan Asset Management, in broad terms he said fund groups saw trusts as secondary to open-ended funds.
But he said an increase in marketing and distribution would not necessarily lead to a huge rise in the popularity of trusts due to other issues.
Gavin Haynes, managing director of Whitechurch Securities, said the level of marketing and distribution varied between fund houses but “some groups and investment trust boards can do better”.
Baillie Gifford bucking trend on trust sales
While most fund houses have separate sales teams for open-ended funds and investment trusts, Baillie Gifford has its sales team selling both, incentivising the closed-ended side just as much as the open-ended side.
James Budden, marketing director at Baillie Gifford, said the firm’s approach was “not prevalent” in the industry, but he believed it was “correct in the post-RDR world”.
He said: “The normal model in a fund house is that they employ almost all resources on the open-ended side.
“On the closed-ended side there will be maybe one or two people who do what is effectively an investor relations job. There is no actual attempt to find new buyers because they are so under-resourced.”
